<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended April 30, 1999
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From _______________ to _______________
Commission file number 0-22636
-------
ARDIS Telecom & Technologies, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2801677
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 Jetstar Drive, Suite 100
Irving, Texas 75063
---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(972) 929-1920
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Canmax Inc.
150 W. Carpenter Freeway
Irving, Texas 75039
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of June 14, 1999, 6,861,005 shares of common stock, $.001 par value per
share, were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,545,118 $ 207,609
Trade accounts receivable, net of allowance of doubtful
accounts of $8,310 and $0 in 1999 and 1998, respectively 345,618 292,086
Inventory 281,619 229,672
Deposits 223,780 --
Prepaid expenses and other 146,128 29,002
Current portion of long-term receivable 231,835 177,845
Current assets of discontinued operations -- 2,305,502
------------ ------------
Total current assets 4,774,098 3,241,716
------------ ------------
PROPERTY AND EQUIPMENT, net 137,122 59,135
PROPERTY AND EQUIPMENT OF DISCONTINUED OPERATIONS, net -- 524,849
LONG-TERM RECEIVABLE, net of current portion 286,697 397,851
OTHER ASSETS 8,280 17,387
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS -- 1,049,641
------------ ------------
TOTAL ASSETS $ 5,206,197 $ 5,290,579
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 216,087 $ 622,836
Accrued liabilities 139,962 227,578
Deferred revenue -- 46,033
Advances from shareholder 500,000 1,500,000
Current liabilities of discontinued operations -- 1,683,591
Note payable - current 162,000 --
------------ ------------
Total current liabilities 1,018,049 4,080,038
------------ ------------
LONG-TERM LIABILITIES
Note payable - long-term 643,000 --
Long-term payables of discontinued operations -- 146,693
------------ ------------
Total long-term liabilities 643,000 146,693
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, 44,169,100 shares authorized; 6,861,005
and 6,611,005 shares, no par value per share, issued
and outstanding at April 30, 1999 and October 31, 1998,
respectively 24,938,974 24,858,809
Accumulated deficit (21,393,826) (23,794,961)
------------ ------------
Total shareholders' equity 3,545,148 1,063,848
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,206,197 $ 5,290,579
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
----------------------------- ------------------------------
1999 1998 1999 1998
REVENUES ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Prepaid phone cards and other $ 846,020 $ -- $ 2,388,739 $ --
Prepaid phone cards - USCommunications -- 548,384 -- 548,384
----------- ---------- ----------- -----------
Total revenues 846,020 548,384 2,388,739 548,384
----------- ---------- ----------- -----------
COSTS AND EXPENSES
Prepaid phone cards and other 738,648 443,621 2,155,869 443,621
Sales & marketing 259,692 -- 479,791 --
General & administrative 525,632 -- 946,352 --
Selling, general & administrative - USCommunications -- 499,970 -- 499,970
Depreciation and amortization 11,534 -- 21,897 --
----------- ---------- ----------- -----------
Total cost of revenues 1,535,506 943,591 3,603,909 943,591
----------- ---------- ----------- ----------
OTHER INCOME (EXPENSES)
Interest expense (18,181) -- (58,049) --
Interest income 34,986 -- 73,964 --
----------- ---------- ----------- -----------
Total other income 16,805 -- 15,915 --
----------- ---------- ----------- -----------
NET LOSS FROM CONTINUING OPERATIONS (672,681) (395,207) (1,199,255) (395,207)
DISCONTINUED OPERATIONS
Income (loss) from operation of software business,
net of income taxes of $0 -- (408,190) 218,376 (966,723)
Gain on sale of software business, net of income
taxes of $0 1,366,518 -- 3,382,012 --
----------- ---------- ----------- -----------
NET INCOME (LOSS) $ 693,837 $ (803,397) $ 2,401,133 $(1,361,930)
=========== ========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.10) $ (0.05) $ (0.18) $ (0.06)
Discontinued operations 0.20 (0.05) 0.54 (0.13)
----------- ---------- ----------- -----------
Net earnings (loss) $ 0.10 $ (0.10) $ 0.36 $ (0.19)
=========== ========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.10) $ (0.05) $ (0.18) $ (0.06)
Discontinued operations 0.20 (0.05) 0.54 (0.13)
----------- ---------- ----------- -----------
Net earnings (loss) $ 0.10 $ (0.10) $ 0.36 $ (0.19)
=========== ========== =========== ===========
SHARES USED IN THE CALCULATION OF PER SHARE AMOUNTS:
Basic common shares 6,861,005 8,111,005 6,733,933 7,356,861
Dilutive impact of stock options and warrants -- -- -- --
----------- ---------- ----------- -----------
Diluted common shares 6,861,005 8,111,005 6,733,933 7,356,861
=========== ========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,401,133 $(1,361,930)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) continuing operating activities:
Loss (income) from discontinued operations (218,376) 966,723
Gain on disposal of software business (3,382,012) --
Stock issued for services 74,225 --
Warrants issued for services 5,942 --
Depreciation and amortization 21,897 57,517
Bad debt reserve 8,310 --
(Increase) decrease in:
Trade accounts receivable (61,842) (710,018)
Inventory (51,947) 17,002
Prepaid expenses and other (149,240) (25,080)
Other assets 9,107 154,282
Increase (decrease) in:
Trade accounts payable (406,749) (36,526)
Accrued liabilities (66,062) 25,954
Deferred revenue (46,033) 831,024
----------- -----------
Net cash used in operating activities from continuing operations (1,861,647) (81,052)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of business, net of cash acquired - (378,982)
Proceeds from sale of software business 3,769,917 --
Purchase of property and equipment (91,550) (23,535)
Payments on note receivable 35,610 --
Deposit on future asset acquisition (200,000) --
----------- -----------
Net cash provided by (used in) investing activities of continuing operations 3,513,977 (402,517)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible debenture - shareholder -- 1,200,000
Repayment of convertible debenture-shareholder (1,000,000) --
Proceeds from notes payable 805,000 --
Payments on notes payable (51,212) (63,538)
----------- -----------
Net cash provided by (used in) financing activities of continuing operations (246,212) 1,136,342
----------- -----------
Cash provided by (used in) discontinued operations 1,931,391 (667,561)
----------- -----------
NET INCREASE IN CASH 3,337,509 (14,788)
Cash at beginning of period 207,609 128,871
----------- -----------
Cash at end of period $ 3,545,118 $ 114,083
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Cash paid for interest $ 18,181 $ 55,199
=========== ===========
Offset of accounts payable against notes receivable $ 21,554 $ --
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month and six month periods
ended April 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending October 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K/A for the year ended October 31, 1998.
A predecessor to ARDIS Telecom & Technologies, Inc. (the "Company" or "Ardis")
was incorporated on July 10, 1986 under the Company Act of the Province of
British Columbia, Canada, and subsequently changed its name to "International
Retail Systems Inc." On August 7, 1992, this predecessor company renounced its
original province of incorporation and elected to continue its domicile under
the laws of the State of Wyoming, and on November 30, 1994, its name was changed
to "Canmax Inc." On February 1, 1999 this predecessor company reincorporated
under the laws of the State of Delaware and changed its name to "ARDIS Telecom &
Technologies, Inc."
During 1998, the Company began competing in the telecommunications market
through its wholly-owned subsidiary, Canmax Telecom, Inc. ("Telecom"). Telecom's
operations include mainly sales and distribution of prepaid domestic and
international calling cards to wholesale and retail customers (the
"Telecommunications Business"). In August 1998, the Company entered into an
agreement with PT-1 Communications, Inc. ("PT-1"). The agreement provides for
PT-1 to supply long distance telecom and debit services, for use in the
Company's marketing and distribution of domestic and international prepaid long
distance calling cards. PT-1 is currently the sole source of these services to
the Company.
The Company, through its wholly owned subsidiary Canmax Retail Systems, Inc.
("CRSI") developed and provided enterprise wide technology solutions to the
convenience store and retail petroleum industries, its "Software Business." On
December 7, 1998, the Company obtained shareholder approval for the sale of, and
sold, the assets of its Software Business (the "Software Business Sale"). The
results of operations of the Software Business through December 7, 1998 have
been presented in the financial statements as discontinued operations. Results
of operations in prior years have been restated to reclassify the Software
Business as discontinued operations. The measurement date for the sale is
December 7, 1998, the date the shareholders approved the transaction.
NOTE B - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Four customers accounted for approximately 25% of revenues during the six
month period ended April 30, 1999, and approximately 93% of the trade
accounts receivable balance at April 30, 1999. Three of the four
customers are affiliates of PT-1. The Company generally does not require
collateral for its trade accounts. The Company has a note receivable from
its prior subsidiary, USCommunication Services, Inc. ("USC"), totaling
$518,532. The note is secured by a lien on all of USC's assets, bears
interest at 12% per annum, is payable in monthly installments of
principal and interest and matures June 15, 2001.
NOTE C - DEPOSITS
During the quarter, the Company paid $200,000 in deposits on hardware and
software to be acquired in June 1999 under an existing contract agreement. (See
Note H.) Upon receipt and installation of these assets, the cost of the assets
will be capitalized and amortized over the assets useful lives.
5
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - CONVERTIBLE DEBENTURES
On December 15, 1997, the Company executed a convertible loan agreement (the
"Original Agreement") with a shareholder, Founders Equity Group, Inc.
("Founders"), which provided financing of up to $500,000. Funds obtained under
the loan agreement were collateralized by all assets of the Company and bear
interest at 10%. Required payments were for interest only and were due monthly
beginning February 1, 1998. Borrowings under the loan agreement originally
matured January 1, 1999, unless otherwise redeemed or converted. Under the terms
of the loan agreement, Founders was entitled to exercise its right at any time
to convert all, or in multiples of $25,000, any part of the borrowed funds into
Common Stock at a conversion price of $1.25 per share. The conversion price was
subject to adjustment for certain events and transactions as specified in the
loan agreements. Additionally, the outstanding principal amount was redeemable
at the option of the Company at 110% of par.
On February 11, 1998, the Company and Founders executed a loan commitment letter
(the "Loan Commitment") which provided for multiple advance loans of up to $2
million upon terms similar to the Original Agreement; however, indebtedness
outstanding under the Loan Commitment was convertible into shares of Common
Stock at a conversion price equal to the average closing prices of the Common
Stock over the five-day trading period immediately preceding the date of each
advance. As consideration for the Loan Commitment, the Company paid a commitment
fee of $10,000.
As of March 31, 1998, Founders (and certain of its affiliates) entered into the
First Restated Loan Agreement (the "Loan Agreement"), which consolidated all
rights and obligations of the Company to Founders under the Original Agreement
and the Loan Commitment. Amounts advanced under the Loan Agreement bore interest
at the rate of 12% per annum, were secured by a lien on all other Company's
assets and were convertible into shares of Common Stock, at the option of
Founders, at $0.80 per share. On August 25, 1998, Founders agreed to release its
lien on all of the Company's assets upon the consummation of the sale of the
Software Business. As consideration for the release, the Company agreed, upon
the consummation of the sale, to repay $1.0 million of the $1.5 million
currently outstanding under the Loan Agreement, and to allow Founders to
convert, at the Company's option, the remaining $0.5 million plus accrued but
unpaid interest outstanding under the Loan Agreement into shares of Common Stock
at a conversion price of $.50 per share.
On February 5, 1998, Founders and the Company entered into a financial
consulting agreement pursuant to which Founders agreed to provide financial
advisory and consulting services to the Company, and the Company agreed to pay
to Founders a fee equal to 3% of the value of the consideration received in any
sale or merger of any division or subsidiary of the Company. As a result of this
agreement, Founders received $120,000 of the initial proceeds of the sale of the
Software Business. Founders agreed to forego any further payments that may be
attributable to the Company's receipt of deferred payments in connection with
the sale.
On December 11, 1998, the Company and Founders executed Amendment No. 1 to the
Loan Agreement. As a result of the amendment, the Company agreed to defer
Founders' conversion of the remaining indebtedness outstanding under the Loan
Agreement in exchange for (a) Founders' waiver of any registration obligation
under the Registration Rights Agreement dated May 1, 1997 or under the Loan
Agreement until February 1, 1999 or the Company's earlier delivery of a
conversion notice with regard to the outstanding indebtedness, (b) the
adjustment of the conversion price for the remaining convertible indebtedness
outstanding under the Loan Agreement ($500,000) from $.50 per share to the
greater of $.50 per share or 75% of the average closing price of the Common
Stock over the ten trading days preceding the delivery of a conversion notice,
and (c) Founders' agreement to convert the remaining outstanding principal
amount under the Loan Agreement ($500,000) upon written notice from the Company
at the adjusted conversion agreed to price described above. Further, the
amendment to the Loan Agreement reduced the interest rate payable on the
outstanding principal amount under the Loan Agreement from 12% to 9% per annum.
The amendment also terminated any additional funding obligations of Founders
under the Loan Agreement. On March 31, 1999, the Company and Founders extended
the maturity date of the Founders Loan Agreement from April 1, 1999 to July 1,
1999.
The Company used $1,000,000 from the Software Business Sale proceeds to pay down
the Founders debt. At April 30, 1999, shareholder advances from Founders totaled
$500,000.
Interest expense in connection with Founders debt was $35,777 for the six month
period ended April 30, 1999.
6
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - NOTES PAYABLE
On April 13, 1999, the Company executed a loan agreement with Bank One for
$805,000. The loan bears interest at prime less .5%, is payable in monthly
installments of $13,500 plus interest beginning May 13, 1999, and matures April
13, 2004. The loan is secured by cash equivalents of $900,000.
NOTE F - DISCONTINUED OPERATIONS
On December 7, 1998, the Company sold substantially all of the assets of CRSI.
Pursuant to the terms of the Purchase Agreement, the Company sold the assets and
received $4,000,000 at closing and transferred certain liabilities arising from
the Software Business. On January 21, 1999, the purchaser and the Company
calculated the net working capital (generally current assets other than cash
minus current liabilities) as of the closing date, and the purchaser received an
amount equal to the negative difference between the net working capital as of
the closing of $230,083. The Company recorded a gain on the sale of the Software
Business of $2,015,494. The gain is calculated as net proceeds of $3,769,917
less net assets of $1,693,259 less legal and accounting fees related to the sale
of $61,164. Ardis is entitled to receive additional deferred payments of up to
an additional $3,625,000 calculated as described below.
The deferred payments will be calculated at the end of each calendar quarter
during the twelve month period commencing on January 1, 1999. Each deferred
payment is calculated based upon the cumulative level of revenue attributable to
the Software Business from January 1, 1999 through the end of each three month
period through December 31, 1999, and equals (a) the sum of (i) 75% of all such
revenues greater than $4 million and less than or equal to $7 million plus (ii)
13.75% of all such revenues greater than $7 million or less than or equal to $17
million, minus (b) the sum of any deferred payments previously made. If CRSI
disputes any calculation of the amount of any deferred payment and such dispute
cannot be resolved among the parties, then the independent public accountants
for each party are to mutually designate a third independent public accountant
to resolve such dispute and the determination of such designated party will be
conclusive and binding on all parties.
On April 30, 1999, the Company received a payment of $1,611,789 resulting from
the first quarter calculation, which has been recorded as additional gain on the
sale of the Software Business, reduced by costs associated with the sale.
Summarized operating results of the discontinued Software Business operations
are as follows:
<TABLE>
<CAPTION>
Period from
November 1, Six months
Through Ended
December 7, April 30,
1998 1998
----------- -----------
<S> <C> <C>
Revenues $ 1,686,945 $ 3,390,963
Costs and expenses 1,468,569 4,357,686
----------- -----------
Net income (loss) $ 218,376 $ (966,723)
=========== ===========
</TABLE>
NOTE G - SHAREHOLDERS' EQUITY
WARRANT ISSUANCES
On January 11, 1999, the Company retained a consultant to assist in its
strategic planning and investor relations activities by issuing warrants to
acquire 50,000 shares of Company common stock at an exercise price of $.29 per
share. The right to acquire 25,000 shares under such warrant vests on January
10, 2000, and the right to acquire the remaining 25,000 shares under the warrant
vests on July 10, 2000.
7
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - SHAREHOLDERS' EQUITY (Continued)
The Company recorded expense of $5,942 in January 1999 related to these
Warrants. This amount represents the Company's estimate of the fair value of
these warrants at the date of grant using a Black-Scholes pricing model with the
following assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate at the grant date of 6.0%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock of
1.02; and an expected life of the warrant of one year.
COMMON STOCK ISSUANCES
On January 25, 1999 the Company issued 250,000 shares of the Company's common
stock to employees of the Company as compensation. In connection with the
issuance, the Company recorded $74,225 of compensation expense, such expense
being calculated as the difference between the trading price of the common stock
on the date of issuance and the proceeds received for the issuance.
NOTE H - COMMITMENTS
On April 15, 1999, the Company agreed to purchase from Simplified Telesys a
telecommunications services platform and switch software for approximately
$805,000, $200,000 of which was paid upon execution of the agreement, $525,000
of which was payable upon installation completion, and the balance of which was
due upon the Company's acceptance of the platform and software, each of which
were anticipated to occur in June of 1999. (See Note J)
NOTE I - YEAR 2000
The Company has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. The Company has
initiated communications with all of its significant suppliers and customers to
determine the extent to which the Company's internal systems and developed
software products are vulnerable to those third parties failure. In connection
with the sale of the Software Business, the Company and the purchaser of the
Software Business conducted a Year 2000 compliance audit of software and systems
developed by the Company. Such audit did not reveal any material items of
noncompliance, and the Company does not expect to incur any material expenses to
cause its developed software and systems to become Year 2000 compliant.
NOTE J - SUBSEQUENT EVENTS
On May 4, 1999, the Company repaid the balance of the amounts outstanding
($500,000) under the loan agreement with Founders and the Company's obligations
under the loan agreement were terminated.
In early June of 1999, Simplified Telesys completed the installation of the
telecommunications platform and software and on June 4, 1999, the Company paid
to Simplified Telesys the second installment of the purchase price for the
equipment and software of $524,851. (See Note H above)
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Through December 7, 1998, the Company operated two distinct businesses, its
Software Business and its prepaid phone card and other telecommunications
business (the "Telecommunications Business"). On December 7, 1998, the Company
consummated the sale of the Software Business to Affiliated Computer Services,
Inc. ("ACS"). As a result of the Software Business Sale, the Company will no
longer engage in the Software Business, and, its business will be focused solely
on its Telecommunications Business. Therefore, historic financial information
attributable to the Software Business will be reported as discontinued
operations.
The following discussion should be read in conjunction with the Company's Form
10-K/A and the consolidated financial statements for the years ended October 31,
1998, 1997 and 1996; the Company's Form 10-Q/A for the quarter ending April 30,
1998; and the consolidated financial statements and related notes for the
quarter ended April 30, 1999 found elsewhere in this report.
RESULTS OF OPERATIONS
In the later part of fiscal 1996, the Company decided that it was critical that
it expand its market beyond one vertical market and one large customer. After
evaluating a number of alternative strategies, the Company decided that the
rapidly expanding telecommunications market presented an opportunity to utilize
some of the technology and support capabilities that it had developed through
its Software Business. The Company chose to make its entry into the
telecommunications industry via the prepaid long distance market.
On January 30, 1998, the Company acquired USCommunications ("USC"). Effective
May 27, 1998, the Company and principals of USC agreed to rescind the USC
acquisition. Following its entry into the Telecommunications Business, the
Company formed Canmax Telecom, Inc., its telecommunications operating company
and a wholly-owned subsidiary, and has established sales and marketing
activities in four principle marketing channels for its prepaid phone card
program, including (a) wholesale and retail sales through independent
distributors, (b) direct sales to retail stores, (c) telemarketing sales to
retail stores, and (d) promotional and specialty marketing sales to businesses.
The initial product used to introduce the Company's Telecom division to the
market was referred to as the Latino Card, as it was targeted to the long
distance market for calls originating within the continental United States to
certain Latin American countries. Services required to offer this card were
provided by USC, and the Company continued to purchase those services from USC
following the rescission of the acquisition.
The Company has established a strategic relationship with PT-1 Communications,
Inc., the nation's largest prepaid card provider. This relationship enables the
Company to pursue its rapid growth plan in the prepaid market prior to the
commitment of a large facilities investment. The Company began marketing prepaid
phone cards with services provided by PT-1 in the latter part of August, 1998,
and at that time discontinued purchasing any services from USC except those
required to complete the operation of the already distributed Latino Cards.
The Company plans to commit approximately $1.0 million in capital investments
for fiscal 1999 to its Telecommunications Business, and plans to be able to
internally fund additional infrastructure development through operations. The
Telecommunications Business was launched during the second quarter of 1998. The
Company's interim financial statements for the three month and six month periods
ended April 30, 1999 and management's discussion and analysis of the results of
operations for such period reflect the results of operations of the
Telecommunications Business only. The results of operations of the Software
Business have been condensed into the line item caption "Discontinued
Operations" in the Company's financial statements and, because the Software
Business has been discontinued, management has not discussed the results of
operations for the Software Business for the three month and six month periods
ended April 30, 1999 as compared to the same period in 1998.
For the three months and six months ended April 30, 1998, all Telecommunications
Business revenues and expenses were generated as a result of the acquisition of
US Communications. During this period, revenue recognition originated from
customer usage of prepaid calling cards. The Company sold cards to retailers and
distributors at a fixed price, with the related cost of the calls being
determined as the cards were used and the calls were made. When the retailer or
distributor was invoiced, deferred revenue was recorded. The Company recognized
this deferred revenue as the customer utilized the calling time and upon
expiration of the cards containing unused calling time.
9
<PAGE>
RESULTS OF OPERATIONS (Continued)
For the three months and six months ended April 30, 1999, revenues and expenses
of the Telecommunications Business were generated solely through the
relationship with PT-1. The Company sells cards purchased from PT-1 to
retailers, distributors, and the Company's vending machine routers in a simple
buy/sell relationship. That is, the cost of the cards is predetermined and the
amount of revenue and related cost of the card are known and earned at the time
that the card is sold to the retailer. Therefore, revenue and costs of that
revenue are recognized at the time of sale.
Due to the differences between the USC and PT-1 phone cards and their
appropriate revenue recognition treatments and the fact that the USC acquisition
was rescinded, the following discussion for the three and six month periods
ended April 30, 1999 and 1998 presents the results of operations separately.
REVENUE
PT-1 Revenues
Pre-paid calling card revenues from continuing operations for the three months
and six months ended April 30, 1999 was approximately $846,000 and $2,389,000,
respectively. There were no PT-1 phone card sales in the three months and six
months ended April 30, 1998.
USC Revenues
Due to the rescission of the USC acquisition in May 1998, there are no revenues
attributable to USC for the three months and six months ended April 30, 1999.
Revenues generated by USC for the three and six months ended April 30, 1998 were
approximately $548,000.
EXPENSES
PT-1 Expenses
Costs of revenues from continuing operations for the three months and six months
ended April 30, 1999 was approximately $739,000 and $2,156,000, respectively.
The costs of revenues are mainly composed of pre-paid calling card activation
costs, printing and freight costs.
General and administrative costs attributable to continuing operations for the
three months and six months ended April 30, 1999 was approximately $526,000 and
$946,000, respectively. These costs were primarily comprised of management,
accounting, legal and overhead expenses.
Sales and marketing costs attributable to continuing operations for the three
months and six months ended April 30, 1999 was approximately $260,000 and
$480,000, respectively. Included in these costs are wages, travel and
promotional expenses.
Interest expense attributable to continuing operations for the three months and
six months ended April 30, 1999 was approximately $19,000 and $58,000,
respectively. This expense is associated with indebtedness outstanding under the
Loan Agreement with Founders that was entered into during fiscal 1998 and
long-term debt.
USC Expenses
Costs of revenues generated by USC for the three and six months ended April 30,
1998 were approximately $444,000.
Selling, general and administrative costs related to USC for the three and six
months ended April 30, 1998 were approximately $500,000.
As a result of the foregoing, the Company incurred a net loss from continuing
operations for the three and six months ended April 30, 1999 of approximately
$673,000 and $1,199,000, respectively.
10
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
Upon consummation of the Software Business Sale on December 7, 1998, the
Company received its initial installment of $4.0 million from ACS,
approximately $1.1 million of which has been used to repay amounts owed to
Founders under the Loan Agreement and $250,000 of which was used to pay
transaction expenses. The Company plans to commit approximately $1.0 million
for capital investments in the Telecommunications Business for fiscal 1999,
and plans to internally fund additional infrastructure development through
operations of the Telecommunications Business. The Company has deposited
$200,000 for the purchase of equipment. Once this system is in place the
Company's policy of revenue recognition on phone cards utilizing this system
will differ from the current policy. The existing revenue recognition policy
will remain in effect for all cards that do not utilize this system. Revenue
recognition will originate as the prepaid calling time is used. The related
cost of the calls will be determined as calls are made, based on the
per-minute rate at that time. Therefore, revenues generated from phone card
sales will be deferred and recognized as the customer utilizes the calling
time or upon expiration of the cards containing unused calling time. The
Company believes existing capital resources and cash from operations will be
sufficient to meet the Company's capital and liquidity needs through fiscal
1999.
At April 30, 1999, the Company had cash and cash equivalents of approximately
$3,545,000, up from $114,000 for the same period in 1998, an increase of
$3,431,000.
Cash used in continuing operating activities totaled $1,861,647 for the six
months ended April 30, 1999. Cash used was comprised of the Company's net income
of $2,401,133, adjusted for: gains from discontinued operations of $218,376;
gain on disposal of the Software Business of $3,382,012; issuance of common
stock to employees; depreciation of $21,897; reserve for bad debt of $8,310; and
net changes in operating assets and liabilities of $772,766. Cash used in
continuing operating activities for the six months ended April 30, 1998 totaled
$81,052.
Cash provided by investing activities of continuing operations for the six
months ended April 30, 1999 totaled $3,513,977 and was primarily comprised of
proceeds from the sale of the Software Business of $3,769,917, reduced by
purchases of property and equipment of $91,550 and deposits on future asset
acquisitions of $200,000. Cash used in investing activities of continuing
operations for the six months ended April 30, 1998 totaled $402,517.
Cash used in financing activities for continuing operations for the six months
ended April 30, 1999 totaled $246,212 reflecting $1,051,212 repayment of
borrowings under the Loan Agreement that was entered into during fiscal 1998 and
proceeds from notes payable of $805,000. Cash provided by financing activities
for the six months ended April 30, 1998 totaled $1,136,342.
Current assets from continuing operations totaled $4,774,098 at the end of the
second quarter of 1999, resulting in net working capital from continuing
operations of $3,756,049. Net accounts receivable totaled $345,618 and
represented 7% of current assets from continuing operations. Accounts
receivable includes four significant accounts which comprised approximately
93% of total trade accounts receivable from continuing operations. Three of
the four customers are affiliates of PT-1.
Net property and equipment from continuing operations totaled $137,122 at the
end of the second quarter of 1999. The majority of property and equipment is
comprised of furniture, fixtures and computer equipment.
Current liabilities from continuing operations totaled $1,018,049 at the end of
the second quarter of 1999, comprised of convertible debentures issued under the
Loan Agreement of $500,000, accounts payable of $216,087; accrued liabilities of
$139,962; and the current portion of the note payable of $162,000.
In connection with the rescission of the Company's acquisition of USC, USC
executed a note payable to the Company in the amount of $725,000. The USC note
matures on June 15, 2001, and is payable in monthly installments on the
fifteenth day of each month. Monthly payments through the maturity date are
approximately $20,000. The USC note is secured by a lien on all of USC's assets.
As of April 30, 1999, approximately $518,532 remained outstanding under the USC
note. The current portion of the note receivable totaled $231,835 at April 30,
1999.
IMPACT OF YEAR 2000
The Company has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. The Company has
initiated communications with all of its significant suppliers and customers to
determine the extent to which the Company's internal systems and developed
software products are vulnerable to those third parties failure. In connection
with the Software Business Sale, the Company and ACS conducted a Year 2000
compliance audit of software and systems developed by the Company. Such audit
did not reveal any material items of noncompliance, and the Company does not
expect to incur any material expenses to cause its developed software and
systems to become Year 2000 compliant.
11
<PAGE>
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Quarterly Report on Form 10-Q include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by the use of such terms as
"expects", "will", "anticipates", "estimates", "believes" and words of similar
meaning. These forward-looking statements relate to business plans, programs,
trends, results of future operations, satisfaction of future cash requirements,
funding of future growth, acquisition plans and other matters. In light of the
risks and uncertainties inherent in all such projected matters, the inclusion of
forward-looking statements in this Form 10-Q should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved or that operating expectations will be realized.
Revenues and results of operations are difficult to forecast and could differ
materially from those projects in forward-looking statements contained herein,
including without limitation statements regarding the Company's belief of the
sufficiency of capital resources and its ability to compete in the
Telecommunications Business. Actual results could differ from those projected in
any forward-looking statements for, among others, the following reasons: (a)
increased competition in the prepaid phone card business from existing and new
competitors, (b) the relatively low barriers to entry for start-up prepaid
operators, (c) the price-sensitive nature of consumer demand, (d) the relative
lack of customer loyalty to any particular prepaid card company, (e) the
Company's dependence upon favorable pricing from its suppliers to compete in the
prepaid phone card industry, (f) increased consolidation in the
telecommunication industry, which may result in larger competitors being able to
compete more effectively, (g) the failure to attract or retain key employees,
(h) continuing changes in governmental regulations affecting the
telecommunications industry and (i) the "Certain Business Factors" identified in
the Company's Annual Report on Form 10-K/A for the year ended October 31, 1998.
The Company does not undertake to update any forward-looking statements
contained herein. Readers are cautioned not to place undue reliance on the
forward-looking statements made in, or incorporated by reference into, this
Quarterly Report on Form 10-Q or in any document or statement referring to this
Quarterly Report on Form 10-Q.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not
applicable.
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On February 1, 1999, the Company changed its state of incorporation
from Wyoming to Delaware by merging into a wholly-owned subsidiary of the
Company organized under the laws of the State of Delaware (the
"Reincorporation"). Prior to the Reincorporation, the authorized capital
stock of the Company consisted of 44,169,000 shares of Common Stock, no par
value per share, and no shares of preferred stock. Following the
Reincorporation, the authorized capital stock of the Company consisted of
44,169,000 shares of Common Stock, $.001 par value per share, and 10,000,000
shares of Preferred Stock, $.001 par value per share (the "Preferred Stock").
The following description of certain characteristics of the capital stock of
the Company does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Certificate of Incorporation,
Bylaws and the Registration Rights, as defined below, each of which is
included as an exhibit hereto, and by the provisions of applicable law.
COMMON STOCK. As of June 1, 1999, there were 6,861,005 shares of Common
Stock outstanding. The holders of Common Stock are entitled to share pro rata
in dividends and distributions, if any, with respect to the Common Stock when,
as and if declared by the Board of Directors, from funds legally available
therefor. Holders of Common Stock are entitled to one vote per share, are not
entitled to cumulative voting in the election of directors and have no
preemptive, subscription, redemption or conversion rights. Upon the
liquidation, dissolution or winding up of the Company, the assets of the Company
remaining after payment of or provision for liabilities and payment to the
holders of Preferred Stock of such preferential amounts that they are entitled
to receive will be distributed pro rata on a share-for-share basis among the
holders of Common Stock. All outstanding shares of Common Stock are, and the
shares to be issued and sold in the Offering will be, duly authorized, validly
issued, fully paid and non-assessable. The rights, preferences and privileges
of holders of Common Stock are subject to any series of Preferred Stock that the
Company may issue in the future.
PREFERRED STOCK. The Company's Board of Directors is authorized, without
further action by the stockholders, to divide the Preferred Stock into series
and, with respect to each series, to determine the preferences and rights, and
the qualifications, limitations or restrictions thereof, including the dividend
rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, the number of shares
constituting the series and the designation of such series. The Board of
Directors could, without stockholder approval, issue Preferred Stock with voting
and other rights that could adversely affect the voting power of the holders of
Common Stock and could have certain anti-takeover effects. The Company has no
present plans to issue any shares of Preferred Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more costly or difficult to achieve.
REGISTRATION RIGHTS. Pursuant to the terms of (a) the Registration Rights
Agreement dated May 1, 1997 by and between the Company and Founders Equity
Group, Inc. ("Founders") with respect to 863,364 shares and (b) the Registration
Rights Agreement dated May 9, 1997 by and between the Company and the Dodge
Jones Foundation ("Dodge Jones") with respect to 1,000,000 shares (collectively
the "Registration Rights Agreements"), the Company has granted to Founders,
Dodge Jones and their transferees certain registration rights. Specifically, of
the terms of the Founders Registration Rights Agreement, the stockholders
holding in excess of 75% of the Common Stock covered by such agreement have the
right to demand that the shares of the Common Stock held by them be registered
under the Securities Act. Under the Dodge Jones Registration Rights Agreement,
holders of all (but not less than all) shares of Common Stock covered by such
agreement have the right to demand that the shares of the Common Stock held by
them be registered under the Securities Act. On November 26, 1997, the Company
filed a registration statement covering the shares of Common Stock held by
Founders, as amended by the post-effective amendments to Registration Statement
on Form S-3 filed on April 12, 1999 and April 30, 1999. Each Company has agreed
to pay all costs and expenses necessary to effect the registration of the shares
of Common Stock to be sold by the stockholders under the Registration Rights
Agreements. The Registration Rights Agreements also grant certain piggy-back
registration rights to the stockholders. Accordingly, whenever the Company
proposes to register any shares of Common Stock under the Securities Act (other
than registrations on Form S-4 or S-8), certain of the stockholders have the
right to include the shares of Common Stock held by them in any such
registration. However, if the managing underwriter (or, in the case of an
offering that is not underwritten, an investment banker) shall advise the
Company that, in its opinion, the number of securities requested and otherwise
proposed to be included in the registration exceeds the number which can be sold
in the offering without adversely affecting the marketability of the offering,
the Company will include in a registration the number of securities which the
Company is advised can be sold in the offering. In determining its securities
to be sold in an offering, all of the securities proposed to be sold by the
Company for its own account shall be included, and then any securities held by
holders requested to be included in the registration pursuant to the terms of
the Registration Rights Agreement shall be included in the registration on a pro
rata basis (based upon the number of securities held by each requesting holder).
The Company is generally obligated to bear the expenses, other than underwriting
discounts and sales commissions, of any piggy-back registrations.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS. The Company will be
subject to Section 203 of the DGCL, the "business combinations" statute. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in various "business combinations" with any "interested stockholder,"
for a period of three years after the time that such stockholder became an
"interested stockholder," unless (i) the business combination or the transaction
by which such stockholder became an "interested stockholder" was approved by the
Board of Directors prior to such, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) certain employee stock
ownership plans) or (iii) on or subsequent to such time the "business
combination" is approved by the Board of Directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
outstanding voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
In addition, certain provisions of the Company's Certificate of
Incorporation and Bylaws summarized in the following paragraphs may be deemed to
have an anti-takeover effect and may delay, defer or prevent an attempt to
obtain control of the Company by means of a proxy contest, tender offer, merger
or other transaction that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
Special Meeting of Stockholders. The Company's Bylaws provide that special
meetings of stockholders of the Company may be called only by the Board of
Directors, or the Executive Committee of the Board of Directors, if any, or the
President. The provision will make it more difficult for stockholders to take
actions opposed by the Board of Directors.
Stockholder Action by Written Consent. The Company's Certificate of
Incorporation provides that no action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may be taken
without a meeting, and the power of stockholders of the Company's to consent in
writing, without a meeting, for the taking of any action is specifically denied.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. In order to be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company no later than 90 days prior to the meeting; provided, however,
that in the event that less than 100 days notice or prior public disclosure of
the date of the meeting is given and made to stockholders, notice by the
stockholder must be received no later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
meeting was mailed or such public disclosure was made in order to be timely.
The Bylaws specify certain requirements for a stockholder's notice to be in
proper form. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
MARKET INFORMATION. The Common Stock is quoted on the OTC Bulletin Board
under the symbol "RDST".
TRANSFER AGENT AND REGISTRAR. Montreal Trust Company of Canada serves as
the transfer agent and registrar for the Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Stockholders was held on April 26, 1999.
Two items of business were acted upon at the meeting: (1) the election of five
directors to serve until the next Annual Meeting of Stockholders and until their
successors are duly elected and qualified; and (2) the ratification of the
selection of King, Griffin & Adamson P.C. to serve as independent public
accountants for the Company for the 1999 fiscal year.
The results of the voting for the election of directors were as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld Abstentions
<S> <C> <C> <C>
Roger D. Bryant 6,278,604 1,840 54,617
Debra L. Burgess 6,278,604 1,840 54,617
Nick DeMare 6,278,604 1,840 54,617
Robert M. Fidler 6,278,604 1,840 54,617
W. Thomas Rinehart 6,278,604 1,840 54,617
</TABLE>
Accordingly, each of the five nominees received a plurality of the votes cast
and was elected.
The results of the voting on the ratification of the selection of King, Griffin
& Adamson P.C. as the Company's independent auditors for the 1999 fiscal year
were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
6,281,741 26,830 26,490
</TABLE>
Accordingly, the number of shares voted for the proposal constitute a majority
of the shares entitled to vote thereon, and the selection of King, Griffin &
Adamson P.C. as the Company's independent auditors for the 1999 fiscal year was
ratified.
ITEM 5. OTHER INFORMATION
On February 1, 1999, Canmax Inc., a Wyoming corporation ("Canmax"), was
merged into ARDIS Telecom & Technologies, Inc., a Delaware corporation and a
wholly-owned subsidiary of Canmax (the "Company") to effect the reincorporation
(the "Reincorporation") of Canmax under the laws of the State of Delaware. The
reincorporation merger was approved on December 7, 1998 by the holders of more
than a majority of the outstanding shares of common stock of Canmax entitled to
vote. As a result of the reincorporation, all of the outstanding shares of
Canmax, no par value per share, were exchanged on a share-for-share basis for
shares of common stock, $.001 par value per share, of the Company. The common
stock of Canmax Inc. was registered pursuant to Section 12(g) of the Securities
and Exchange Act of 1934, as amended ("Exchange Act"). Pursuant to Rule
12g-3(a) under the Exchange Act, the Company's common stock is deemed to be
registered under Section 12g of the Exchange Act.
On May 4, 1999, the Company repaid the balance of the amounts outstanding
($500,000) under the Loan Agreement with Founders Equity Group, Inc., and the
Company's obligations under the Loan Agreement were terminated.
In early June of 1999, Simplified Telesys completed the installation of the
Company's telecommunications platform and switch software and, on June 4, 1999,
the Company paid to Simplified Telesys $524,851, representing the second
installment for the purchase price for the equipment and software. The Company
obtained third party financing for the acquisition of the equipment and software
payable in monthly installments of $13,500 and maturing April 13, 2004. The loan
is secured by cash, collateral and marketable securities of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are required to be filed with this quarterly report
on Form 10-Q:
ITEM 7
2.1 Agreement and Plan of Merger dated as of February 1, 1999
among ARDIS Telecom & Technologies, Inc. and Canmax Inc.
3.1 Certificate of Incorporation of ARDIS Telecom &
Technologies, Inc. (filed as Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference).
3.2 Bylaws of ARDIS Telecom & Technologies, Inc. (filed as
Exhibit 3.4 to the Company's Annual Report on Form 10-K for
the year ended October 31, 1998 and incorporated herein by
reference).
4.1 Registration Rights Agreement between the Company and Dodge
Jones Foundation (filed as Exhibit 4.01 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1997 and incorporated herein by reference)
4.2 Registration Rights Agreement between the Company and
Founders Equity Group, Inc. (filed as Exhibit 4.02 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997 and incorporated herein by reference)
11 Statement re Computation of Per Share Earnings (filed
herewith).
27 Financial Data Schedule (filed herewith).
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARDIS Telecom & Technologies, Inc.
(Registrant)
DATE: June 14, 1999 /s/ Debra L. Burgess
------------------- ---------------------------------
Debra L. Burgess
Executive Vice President,
Treasurer, Chief Operating
Officer and Chief Financial
Officer
14
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") is entered into on
this 1st day of February, 1999 by and between CANMAX INC., a Wyoming corporation
("Canmax-Wyoming") and ARDIS TELECOM & TECHNOLOGIES, INC., a Delaware
corporation ("Canmax-Delaware").
R E C I T A L S:
WHEREAS, Canmax-Wyoming is a corporation duly organized and existing under
the laws of the State of Wyoming;
WHEREAS, Canmax-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, on the date hereof, the authorized capital of Canmax-Wyoming
consists of 44,169,100 shares of common stock, no par value per share
("Canmax-Wyoming Common Stock"), of which 6,611,005 shares are issued and
outstanding;
WHEREAS, on the date hereof, the authorized capital of Canmax-Delaware
consists of 44,169,100 shares of common stock, par value $.001 per share
("Canmax-Delaware Common Stock"), of which 10,000 shares are issued and
outstanding and 10,000,000 shares of preferred stock, par value $0.001 per
share, of which no shares are issued and outstanding;
WHEREAS, the respective Boards of Directors of Canmax-Wyoming and
Canmax-Delaware have determined that it is advisable and in the best interests
of each such corporation that Canmax-Wyoming merge with and into Canmax-Delaware
upon the terms and subject to the conditions of this Merger Agreement for the
purpose of effecting the reincorporation of Canmax-Wyoming in the State of
Delaware, and the respective Boards of Directors of Canmax-Wyoming and
Canmax-Delaware have, by resolutions duly adopted, approved and adopted this
Merger Agreement; and
WHEREAS, the parties intend by this Merger Agreement to effect a
"reorganization" under Section 368 of the Internal Revenue Code of 1986, as
amended.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
1
<PAGE>
A G R E E M E N T S:
A. MERGER. At the Effective Time (as hereinafter defined),
Canmax-Wyoming shall be merged with and into Canmax-Delaware (the "Merger").
Canmax-Delaware shall be the surviving corporation of the Merger (hereinafter
sometimes referred to as the "Surviving Corporation"), and the separate
corporate existence of Canmax-Wyoming shall cease. The Merger shall become
effective upon the filing of the appropriate documents with the Secretary of
State of the State of Delaware and the Secretary of State of the State of
Wyoming. The date and time when the Merger shall become effective is herein
referred to as the "Effective Time."
B. GOVERNING DOCUMENTS.
1. The Certificate of Incorporation of Canmax-Delaware as it may be
amended or restated subject to applicable law, and as in effect immediately
prior to the Effective Time, shall constitute the Certificate of
Incorporation of the Surviving Corporation without further change or
amendment until thereafter amended in accordance with the provisions
thereof and applicable law.
2. The Bylaws of Canmax-Delaware as in effect immediately prior to
the Effective Time shall constitute the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof and applicable law.
C. OFFICERS AND DIRECTORS. The persons who are officers and directors of
Canmax-Wyoming immediately prior to the Effective Time shall, after the
Effective Time, be the officers and directors of the Surviving Corporation,
without change until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws and
applicable law.
D. RIGHTS, PRIVILEGES, ETC. At the Effective Time, the separate
corporate existence of Canmax-Wyoming shall cease, and the Surviving Corporation
shall possess all the rights, privileges, powers and franchises of a public or
private nature and be subject to all the restrictions, disabilities and duties
of Canmax-Wyoming; and all the rights, privileges, powers and franchises of
Canmax-Wyoming on whatever account, as well for share subscriptions and all
other things in action, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectively the property of the Surviving
Corporation as the same were of Canmax-Wyoming, and the title to any real estate
vested by deed or otherwise shall not revert or be in any way impaired by reason
of the Merger, but all rights of creditor and liens upon any property of
Canmax-Wyoming shall be reserved unimpaired, and all debts, liabilities and
duties of Canmax-Wyoming shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it; PROVIDED, HOWEVER, that such
liens upon property of Canmax-Wyoming will be limited to the property affected
thereby immediately prior to the Merger. All corporate acts, plans, policies,
agreements, arrangements, approvals and authorizations of Canmax-Wyoming, its
shareholders, Board of Directors and committees thereof, officers and agents
which were valid and effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans,
2
<PAGE>
policies, agreements, arrangements, approvals and authorizations of the
Surviving Corporation, its shareholders, Board of Directors and committees
thereof, respectively, and shall be as effective and binding thereon a the
same were with respect to Canmax-Wyoming.
E. CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
1. Each share of Canmax-Wyoming Common Stock outstanding immediately
prior to the Effective Time shall, except as provided in Section 9 hereof,
be converted into, and shall become, one fully paid and nonassessable share
of Canmax-Delaware Common Stock.
2. Each share of Canmax-Wyoming Common Stock held in the treasury of
Canmax-Wyoming immediately prior to the Effective Time shall be
automatically converted into one share of Canmax-Delaware Common Stock,
which shares shall continue to be retained and held by Canmax-Delaware in
the treasury thereof.
3. Each option, warrant, purchase right, convertible debt instrument
or other security of Canmax-Wyoming issued and outstanding immediately
prior to the Effective Time shall be changed and converted into and shall
be an identical security of Canmax-Delaware, and the same number of shares
of Canmax-Delaware Common Stock shall be reserved for purposes of the
exercise of such option, warrant, purchase right, convertible debt
instrument or other securities as is equal to the number of shares of
Canmax-Wyoming Common Stock so reserved at the Effective Time; and
4. Each share of Canmax-Delaware Common Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and retired, and
no payment shall be made with respect thereto, and such shares shall resume
the status of unauthorized and unissued shares of Canmax-Delaware Common
Stock.
F. STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of Canmax-Wyoming Common Stock shall be deemed for all
purposes to evidence ownership of, and to represent shares of, Canmax-Delaware
Common Stock into which the shares of Canmax-Wyoming Common Stock formerly
represented by such certificates have been converted as herein provided. The
registered owner on the books and records of Canmax-Wyoming or its transfer
agent of any such outstanding stock certificate shall, until such certificate
shall have been surrendered for transfer or otherwise accounted for to the
Surviving Corporation or its transfer agent, have and be entitled to exercise
any voting or other rights with respect to and to receive any dividends and
other distributions upon the shares of Canmax-Delaware Common Stock evidenced by
such outstanding certificate as above provided. Nothing contained herein shall
be deemed to require the holder of any shares of Canmax-Wyoming Common Stock to
surrender the certificate or certificates representing such shares in exchange
for a certificate or certificates representing shares of Canmax-Delaware Common
Stock.
G. OPTIONS. Each right in or to, or option to purchase, shares of
Canmax-Wyoming Common Stock, granted under Canmax-Wyoming's Stock Option Plan
(the "Plan") and otherwise, which is outstanding immediately prior to the
Effective Time, shall, by virtue of the
3
<PAGE>
Merger and without any action on the part of the holder thereof, be converted
into and become a right in or to, or an option to purchase at the same option
price per share, the same number of shares of Canmax-Delaware Common Stock,
upon the same terms and subject to the same conditions as set forth in the
Plan or otherwise as in effective at the Effective Time. The same number of
shares of Canmax-Delaware Common Stock shall be reserved for purposes of the
outstanding options as is equal to the number of shares of Canmax-Wyoming
Common Stock, upon the same terms and subject to the same conditions as set
forth in the Plan or otherwise as in effect at the Effective Time. The same
number of shares of Canmax-Delaware Common Stock shall be reserved for
purposes of the outstanding options as is equal to the number of shares of
Canmax-Wyoming Common Stock so reserved as of the Effective Time. As of the
Effective Time, the Surviving Corporation hereby assumes the Plan and all
obligations of Canmax-Wyoming under the Plan including the outstanding rights
or options or portions thereof granted pursuant to the Plan and otherwise.
H. OTHER EMPLOYEE BENEFIT PLANS. As of the Effective Time, the Surviving
Corporation hereby assumes all obligations of Canmax-Wyoming under any and all
employee benefit plans in effect as of the Effective Time or with respect to
which employee rights or accrued benefits are outstanding as of the Effective
Time.
I. DISSENTING SHAREHOLDERS.
1. Notwithstanding the provisions of Section 5.a. hereof, any
outstanding shares of Canmax-Wyoming Common Stock held by a
shareholder who shall have elected to dissent from the Merger and who
shall have exercised and perfected his right to dissent with respect
to such shares in accordance with Article 13 of the Wyoming Business
Corporation Act (a "Dissenting Shareholder") shall not be converted
into shares of Wyoming-Delaware Common Stock as a result of the
Merger, but such Dissenting Shareholders shall be entitled to receive
in lieu thereof only such consideration as shall be provided in such
Article 13, except that shares of Canmax-Wyoming Common Stock
outstanding immediately prior to the Effective Time and held by a
Dissenting Shareholder who shall thereafter withdraw his election to
dissent from the Merger or lose his right to dissent from the Merger
as provided in such Article 13 shall be deemed converted, as of the
Effective Time, into such number of shares of Canmax-Wyoming Common
Stock as such holder otherwise would have been entitled to receive as
a result of the Merger.
2. Canmax-Delaware hereby agrees that it may be served with process
in the State of Wyoming in any proceeding to enforce any obligation or
the rights of a Dissenting Shareholder arising from the Merger.
Canmax-Delaware appoints the Secretary of State of Wyoming as its
agent to accept service of process for any such proceeding and a copy
of such process shall be mailed by the Secretary of State of the State
of Wyoming to Canmax-Delaware at 150 West Carpenter Freeway, Irving,
Texas 75039, Attention: Corporate Secretary.
J. GOVERNING LAW. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
4
<PAGE>
K. AMENDMENT. Subject to applicable law and subject to the rights of
Canmax-Wyoming's shareholders further to approve any amendment which would have
a material adverse effect on such shareholders, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
L. DEFERRAL OR ABANDONMENT. At any time prior to the Effective Time,
this Merger Agreement maybe terminated and the Merger may be abandoned or the
time of consummation of the Merger may be deferred for a reasonable time by the
Board of Directors of either Canmax-Wyoming or Canmax-Delaware or both,
notwithstanding approval of this Merger Agreement by the shareholders of
Canmax-Wyoming or the stockholders of Canmax-Delaware, or both, if circumstances
arise which, in the opinion of the Board of Directors of Canmax-Wyoming or
Canmax-Delaware, make the Merger inadvisable or such deferral of the time of
consummation thereof advisable.
M. COUNTERPARTS. This Merger Agreement may be executed in any number of
counterparts, each of which shall constitute an original document but all of
which together shall constitute one and the same Agreement.
N. FURTHER ASSURANCES. From time to time, as and when required or
requested by either Canmax-Wyoming or Canmax-Delaware, as applicable, or by its
respective successors and assigns, there shall be executed and delivered on
behalf of the other corporation, or by its respective successors and assigns,
such deeds, assignments and other instruments, and there shall be taken or
caused to be taken by it all such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation the title to and possession of all
property, interests, assets, rights, privileges, immunities, powers, franchise
and authority of Canmax-Wyoming and otherwise to carry out the purposes of this
Merger Agreement, and the officers and directors of each corporation are fully
authorized in the name and on behalf of such corporation or otherwise, to take
any and all such action and to execute and deliver any and all such deeds,
assignments and other instruments.
5
<PAGE>
IN WITNESS WHEREOF, Canmax-Wyoming and Canmax-Delaware have caused this
Merger Agreement to be signed by their respective duly authorized officers and
delivered this 1st day of February, 1999.
CANMAX INC.,
a Wyoming corporation
By: /s/ Roger D. Bryant
----------------------------------
Name: Roger D. Bryant
Title: President
ARDIS TELECOM & TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ Roger D. Bryant
----------------------------------
Name: Roger D. Bryant
Title: President
6
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share as calculated in accordance with FASB 128.
<TABLE>
<CAPTION>
Three months Ended April 30,
----------------------------
1999 1998
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Basic Diluted Basic Diluted
NUMERATOR:
Net (loss) from continuing operations $ (672,681) $ (672,681) $ (395,207) $ (395,207)
Net income (loss) from discontinued operations 1,366,518 1,366,518 (408,190) (408,190)
---------- ----------- ----------- -----------
Net income (loss) $ 693,837 $ 693,837 $ (803,397) $ (803,397)
========== =========== =========== ===========
DENOMINATOR:
Weighted average shares outstanding 6,861,005 6,861,005 8,111,005 8,111,005
---------- ----------- ----------- -----------
Stock options and warrants -- -- -- --
---------- ----------- ----------- -----------
Weighted average shares outstanding 6,861,005 6,861,005 8,111,005 8,111,,005
========== =========== =========== ===========
Earnings (loss) per share - continuing operations $ (0.10) $ (0.10) $ (0.05) $ (0.05)
Earnings (loss) per share - discontinued operations $ 0.20 $ 0.20 $ (0.05) $ (0.05)
---------- ----------- ----------- -----------
Earnings (loss) per share $ 0.10 $ 0.10 $ (0.10) $ (0.10)
========== =========== =========== ===========
Six months Ended April 30,
---------------------------
1999 1998
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Basic Diluted Basic Diluted
NUMERATOR:
Net (loss) from continuing operations $(1,199,255) $(1,199,255) $ (395,207) $ (395,207)
Net income (loss) from discontinued operations 3,600,388 3,600,388 (966,723) (966,723)
----------- ----------- ----------- -----------
Net income (loss) $ 2,401,133 $ 2,401,133 $(1,361,930) $(1,361,930)
=========== =========== =========== ===========
DENOMINATOR:
Weighted average shares outstanding 6,733,933 6,733,933 7,356,861 7,356,861
----------- ----------- ----------- -----------
Stock options and warrants -- -- -- --
----------- ----------- ----------- -----------
Weighted average shares outstanding 6,733,933 6,733,933 7,356,861 7,356,861
=========== =========== =========== ===========
Earnings (loss) per share - continuing operations $ (0.18) $ (0.18) $ (0.06) $ (0.06)
Earnings (loss) per share - discontinued operations $ 0.54 $ 0.54 $ (0.13) $ (0.13)
----------- ----------- ----------- -----------
Earnings (loss) per share $ 0.36 $ 0.36 $ (0.19) $ (0.19)
=========== =========== =========== ===========
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1999
<PERIOD-START> FEB-01-1999 NOV-01-1998
<PERIOD-END> APR-30-1999 APR-30-1999
<CASH> 3,545,118 3,545,118
<SECURITIES> 0 0
<RECEIVABLES> 353,928 353,928
<ALLOWANCES> 8,310 8,310
<INVENTORY> 281,619 281,619
<CURRENT-ASSETS> 4,774,098 4,774,098
<PP&E> 170,041 170,041
<DEPRECIATION> 32,919 32,919
<TOTAL-ASSETS> 5,206,197 5,206,197
<CURRENT-LIABILITIES> 1,018,049 1,018,049
<BONDS> 0 0
0 0
0 0
<COMMON> 24,938,974 24,938,974
<OTHER-SE> (21,393,826) (21,393,826)
<TOTAL-LIABILITY-AND-EQUITY> 5,206,197 5,206,197
<SALES> 846,020 2,388,739
<TOTAL-REVENUES> 846,020 2,388,739
<CGS> 738,648 2,155,869
<TOTAL-COSTS> 738,648 2,155,869
<OTHER-EXPENSES> 796,858 1,448,040
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 18,181 58,049
<INCOME-PRETAX> (672,681) (1,199,255)
<INCOME-TAX> (672,681) (1,199,255)
<INCOME-CONTINUING> (672,681) (1,199,255)
<DISCONTINUED> 1,366,518 3,600,388
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 693,837 2,401,133
<EPS-BASIC> 0.10 0.36
<EPS-DILUTED> 0.10 0.36
</TABLE>
